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Since 2008, the Western middle class has shrunk due to growing inequalities within societies. What are political and socioeconomic implications of the fact?

The years of hyperglobalization helped reduce inequalities across countries but raised inequalities within them, especially in the developed ones. High unemployment and stagnating incomes followed the economic recession. This left many middle class households worse off after the 2008 crisis. On the contrary, the wealthiest top percent of households at the same time significantly increased their wealth, which led to the widespread sense of loss among the Western middle class.

Adult population by income tier (% share in total*).
*Total here is defined as the sum of middle, upper and lower income groups.

Source: PEW Research, Credit Suisse

Furthermore, the middle class grew frustrated about the way political establishment deal with problems such as migration and terrorism. This led citizens across the developed world to mobilize to drive political change, the results of which have become increasingly apparent. Britain chose to leave the European Union, in the USA, voters elected president a political outsider who vowed to break with political traditions. In the Eurozone, there is strong support for political leaders who are ready to tackle the current economic and societal problems.

What the Western Middle Class Wants

The middle class attaches great importance to safety and security, whether it is job or individual security. Therefore, we believe that incoming governments will seek to strengthen domestic economies through job creation, wage increases and regulation or taxation of industries that are seen as eliminating jobs. The new governments are likely to strive to restore the prosperity of the middle class and stimulate private consumption. Investors can expect sectors and companies that benefit from such policies to see an upswing in sales, revenues and market valuations.

Focus on National Champions and Brands

In this context, so called national champions may benefit substantially. These companies can be the subject of soft mercantilist measures like government incentives to build factories at home or suspension of corporate taxes if they invest domestically. National champions employ a large workforce in their home market and are a strategic interest for their home country.

National brands, on the other hand, are an extension of the national champions. Such brands are well recognized, have global reach and recognition. They are politically important therefore they are protected by politicians in their home country and enjoy the benefits of political lobbying. Most national brands are found in the consumer sectors.
Moreover, strategically important industries (e.g. general and IT manufacturing, construction, telecom equipment) are likely to create jobs for low-skilled workers, the "forgotten" group in Western societies.

By keeping their electoral promises, newly elected governments are likely to bring about economic policy measures aimed at appeasing the Western middle class. We expect a period characterized by economic policy that seeks to support domestic consumers and a redistribution of growth to sectors with high domestic employment.

Investing Supertrends

In this series of articles we will dive into particular investment themes explaining the socioeconomic phenomena behind the most promising ones. Articles published so far: